Tax Rates: Reagan vs. Obama

Now that we’re talking about taxing the rich more and face the specter of all the Bush tax cuts being eliminated, I thought I’d look up some figures from the 1980s to see what happened when Ronald Reagan lowered the tax rates. How did this affect revenue? An article from the Cato Institute provides the numbers. The author of the article, Richard Rahn, notes that most of the Reagan tax cuts were applied to those in the middle- and lower-income brackets, which is something that may surprise some readers who are used to being told Republicans only give tax breaks to the rich.

According to the Congressional Budget Office (CBO), total tax revenues in the 1980s did fall as a portion of the Gross Domestic Product (GDP), but the reason that percentage went down is because the economy grew at an astounding rate. In real terms, it grew 34.3% from 1982 to 1989, “much faster than the 24.3% rate expected even by economists within the Reagan administration. Thus, by the time President Reagan left office, the economy was generating more tax revenue at a maximum 28% rate than many on the left forecast it to generate at a maximum 70% rate.”

In other words, there is a point at which higher tax rates are counterproductive. More revenue can be obtained with moderate rates than with high ones. Rahn concludes, “The Reagan tax-rate reductions did, in fact, pay for themselves—but it took about seven years.”

When Obama says he will only increase taxes on the rich, he’s talking about those who make more than $200,000 per year. Yet many small businesses fall in that category, and they are the ones who create most of the new jobs and fund new investment. In effect, the president will be declaring war on small businesses, and in the process putting more people in the unemployment lines.

In my opinion, that might be what he wants to do. The more people who are dependent on the government for their sustenance, the more loyalty he will generate for himself and his administration. His ideology is Marxist at its core, and he doesn’t really care to create prosperity via the private sector. He would rather see it shrink and watch the government grow more powerful.

Some may protest: surely he wouldn’t want us to follow the same path as other bankrupt nations, would he? I’m not so sure. An ideologue is an ideologue—it’s what motivates him.

We see the same thing happening in some states. California is a prime example. Gov. Jerry Brown is leading the state into increased spending and higher taxes while the state veers toward insolvency. Fortunately, the damage within a state can be contained, and people have the option to go elsewhere, to states that still grasp the basics of how free enterprise works.

So don’t be fooled by the rhetoric of “fairness.” In the end, if Obama and the Democrats get their way, we all will be worse off.